Jobs in equity research might not be as regimented as other parts of investment banking, but there’s a clear division of responsibilities among the different job titles. As with other parts of banking, you start out as an analyst, a role that typically has three different levels, progress to associate (there are two levels here), then VP, director or executive director (depending on the bank) and finally managing director.
“The managing director (MD) and the analyst will have the same tool kit for doing the job,” says Zafar Khan, head of aerospace and defence equity sector research at Societe Generale Corporate & Investment Banking. “This includes many and varied skills such as the need to understand macro and micro-economics, accounting, business strategy as well as intimate details of all companies under coverage. The MD will have many years of experience, having lived through a few business cycles, and will typically be running a sector team whereas the analyst and associate will be doing a lot of the groundwork under the senior’s supervision.”
The analyst and associate will be doing a lot of the groundwork under the senior’s supervision
“Associates support the team by maintaining financial models and databases, keeping abreast of sector news, writing parts of reports, and gradually sharpening presentation and discussion skills with internal colleagues and a limited number of clients,” adds Matthew Thomas, head of Russian/CEEMEA oil and gas equity research at Barclays in London.
One of the most common moves for an investment banking equity researcher, aside from progressing on the sell-side, is to switch across to a research role on the buy-side. This means working for a fund manager, a hedge fund or for a private equity firm.
“Equity research provides a thorough grounding in analysing and valuing companies and is often a launch pad for careers in fund management and private equity,” says Khan.
In reality, the two jobs differ a lot. In investment banking it obviously pays to make a lot of correct calls about the investability of a particular stock, but analysts will make a call on whether to buy, sell or ‘hold’ a particular asset. They’re essentially advising clients on what they anticipate will happen to a particular stock, rather than necessarily encouraging them to invest.
However, on the buy-side it’s more about generating ideas for fund managers to invest in. You’re seeking out investments that will benefit the portfolio of a mutual fund or hedge fund. If you’re successful, this is called generating 'alpha' – namely, coming up with an investment that will outperform the market significantly.
More recently, particularly in Europe, senior equity researchers have started their own boutique firms, offering in-depth research on a specialist area to a select group of clients.